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Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 32 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe.Â
Assasination of Iranian Terror Master: Crude oil fell after the Iran non-casualty retaliation strike at US facilities in Iraq highlighted a game plan of de-escalation from a potential war footing. Iran played up their attack against the Great Satan for the assassination of the head of the Iranian Quds forces (General Qassem Soleimani) in their home market. The reality was less than their fake news portrayed but what was required to cool down their grieving citizens. WTI Crude oil had risen as fears rose of an all out war on Wednesday morning to US$65.61/b up nearly US$4/b in the overnight trading. However as details came out that there were no casualties and no significant damage at the two facilities hosting US military assets, the markets calmed down. President Trump used his news conference yesterday to further cool down the war hawks. The price of crude fell below US$60/b on Wednesday, reaching as low as US$58.68/b before closing at US$59.61/b. On Friday January 10, it fell below US$59/b intraday.Â
Iran/US tensions are decreasing and the chance for a diplomatic solution is now more likely. Iran’s attack was made to show the US its ballistic missile capability but the choice of small bases with few US military personnel and assets was done deliberately to show retaliation but also restraint to keep this from escalating out of control. If Iran wanted escalation they had a lot of more important targets available for their retaliatory strike. Iran may now be working to get the Iraqi government to work towards getting a time focused removal of all US bases and personnel from the country and giving Iran free reign. We do not see this week’s event as the end of the conflict but expect some further militant actions of a low level intensity as likely as this plays out to Iran’s satisfaction. Over time Iran wants to see the two Shiite nations working closer together. Trump’s tweets may make for disconcerting headlines but the facts on the ground may prove inconsequential. Neither country wants or can afford a lengthy and deadly conflict. The US last Friday upped their painful and aggressive sanctions but also made an offer on the other hand to hold talks on a new stronger tougher nuclear agreement. This may get a lot of press but may only have a moderate chance of success in the end given the US election cycle this year.
One disconcerting event was the downing of a civilian airplane leaving Tehran for Kiev, Ukraine with significant casualties. There are various reports now that imply that Iran’s strike against the US in Iraq may have something to do with this crash. Hopefully this is incorrect! Iran denies this was their fault but Canada and the US are now not so sure. Iran at least will now allow an international air specialist to determine the reason for the crash.
EIA Weekly Data:  Last week’s EIA crude oil report was decidedly bearish for WTI prices and was the reason we saw the quick breach of US$60/b once the war premium disappeared.
- Crude oil commercial stocks rose last week by 1.2Mb versus the expectation of a decline of 3.5Mb. The reason for the big difference again was due to weekly net imports changes. Last week US net imports rose by 1.78Mb/d or by 12.4Mb on the week as imports rose by 379Kb/d and exports fell a whopping 1.4Mb/d to 3.06Mb/d. The prior week had record exports of 4.46Mb/d.
- With refinery utilization at 93.0% product inventories rose sharply. Gasoline inventories rose by 9.1Mb (a near record for one week) and Distillate inventories rose by 5.3Mb. Overall inventories were a shocker rising by 14.8Mb on the week (due to the decline in exports).
- US consumption was also weaker falling by 571Kb/d for overall demand to19.35Mb/d and by 828Kb/d for gasoline to 8.13Mb/d.
Conclusion: Our view has been that crude oil would retreat from the lofty war fear levels as near term fundamentals have warranted and this is now happening.
Based upon the current fundamental situation we continue to expect to see WTI crude prices retreat to the US$54-56/b level in coming weeks. If this occurs then we could see a low risk buying opportunity and we will send out Action Alerts to our subscribers at that time.
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